Alterations and Incomplete Instruments

Question 1

What are the two types of unauthorized changes?

Answer 1

(1) Alteration of an existing, complete instrument and
(2) Unauthorized complation of an incomplete instrument

Question 2

What is the effect of an alteration on an HDC?

Answer 2

• Change in obligation–enforce for original amount
• Unauthorized completion–enforce as completed

Question 3

What is the effect of an alteration on a non-HDC?

Answer 3

(1) If fraudulently made by holder of instrument, obligor totally discharged
(2) If not fraudulently made, obligor liable under the original terms

Question 4

What are the rules on not properly payable and what are the defenses?

Answer 4

An altered check is not properly payable–defenses:
* Negligence–if drawer’s negligence substantially contributes to the alteration the drawer will be precluded from asserting the alteration
* Blank statement rule–drawer must report alterations to the drawee bank within 180 days of receiving the statement and cancelled checks

Question 5

What warranties do altered instruments breach?

Answer 5

Transfer and presentment warranties that promise that there have been no alterations